Freshwater Forested Wetlands Restoration Cost-Benefit Analysis: Financial and Economic Evaluation of Tonlé Sap, Cambodia

Abstract

Freshwater forested wetlands are among the most ecologically and economically significant ecosystems on the planet, providing water purification, carbon sequestration, and highly productive fisheries (Xu et al., 2020). Despite their importance, more than 20% of global freshwater wetlands have been degraded or lost over the past centuries (Fluet-Chouinard et al., 2023). Restoring these ecosystems can help reverse this trend by recovering ecosystem services, yet the current structure of environmental finance remains insufficient to mobilize capital at the required scale. The global restoration financing gap is estimated at USD 216 billion per year by 2030 and USD 498 billion by 2050 (United Nations Environment Programme, 2025). Mobilizing capital at scale requires restoration initiatives to demonstrate both financial viability and broader economic benefits (Florentine et al., 2023). In this context, cost-benefit analysis (CBA) provides a framework to assess the financial and economic viability of forested wetland restoration projects (Wainaina et al., 2020). In this thesis, I used a CBA to evaluate the cost and benefit components determining the financial and economic viability of large-scale flooded forest restoration, using a reforestation and livelihood initiative around Tonlé Sap Lake in Cambodia as a case study. I applied both a financial and an economic CBA to evaluate the initiative from the perspective of a private implementing entity and from a broader societal perspective. In both analyses, I sought to evaluate the most influential cost and benefit components that determine the overall viability of the initiative. I examined the market conditions required for the project to deliver financial and economic viability, and identified polices implications that can stimulate private and public investments in nature restoration. The results revealed a divergence between financial and economic outcomes. The financial analysis (i.e., CBA from the perspective of a private implementing entity) produced a negative total NPV of USD -69.6 million, driven primarily by the reforestation component. This component generated USD 34.5 million in carbon credit revenues against USD 153.4 million in costs. In contrast, the livelihood program generated a positive financial NPV of USD 49.4 million. Financial performance is constrained by flooded forest ecological characteristics limiting carbon removal potential and by the temporal mismatch between high upfront costs and delayed carbon revenues. Break-even carbon prices ranged from approximately USD 60 to USD 195 tCO2e-1 across scenarios, exceeding current voluntary carbon market prices. However, financial outcomes improved under modeled conditions of accelerated carbon uptake, access to higher carbon prices, and the use of catalytic or philanthropic capital to cover upfront costs. The integration of additional revenue streams, such as the livelihood program, further reduced financial losses and lowered break-even carbon prices. In contrast, the economic analysis showed substantial positive net benefits, with a total economic NPV of USD 2,497.6 million. Reforestation generated USD 1,572.2 million in economic value, primarily driven by increased fisheries productivity, which accounted for 96% of total benefits. The livelihood program generated USD 925.4 million, contributing significantly to local income and agricultural productivity. These findings highlight a structural investment gap. While flooded forest restoration is not financially viable under prevailing market conditions, it generates substantial net economic value for society. Bridging this gap may require financing approaches that combine private revenue generation with catalytic capital and supportive public policies that reflect the broader social value of restoration and address upfront investment barriers.